The Replacement Senator Causing Democrats Fits

As the lamest of the Senate’s lame ducks, Delaware Senator Ted Kaufman should be coasting at this point. No matter what happens in November, he will be out of a job a few days later, when his two-year turn as Vice President Joe Biden’s appointed replacement comes to an end. “I’m junior,” the wild-haired, 71-year-old former Biden staffer admits. “I can’t get more junior.”

But instead of sailing quietly into oblivion, Kaufman has decided to make waves. Most notably, he is challenging his Senate colleagues–and the Obama Administration–to get behind far tougher financial regulations than they have yet proposed, a move that has been unsettling to both bank lobbyists and White House aides. “I think most people know that I am really cranked up about this,” Kaufman says with a smile.

In late March, after most of his colleagues had split for the Easter holiday, Kaufman lingered on the Senate floor, waiting for his chance to address rows of empty chairs, a few pimple-faced pages and the C-SPAN cameras in his latest well-sourced broadside against the conventional wisdom on Wall Street and in the White House. “Unless Congress breaks up the megabanks that are ‘too big to fail,'” he declared to an empty chamber, “the American taxpayer will remain the ultimate guarantor in an almost-certain-to-repeat-itself cycle of boom, bust and bailout.”

As a policy matter, Kaufman’s prediction is heavily debated among economists. But as politics, his critique threatens to undermine the White House’s finely tuned election-year story line. To hear President Obama or his aides tell it, the coming Senate debate on financial regulatory reform will offer a clear choice to voters this fall between most Democrats who are defending the interests of Main Street and most Republicans who are in the pocket of Wall Street. Kaufman, by contrast, argues that neither party has yet shown much seriousness about undoing decades of deregulation, and nonregulation, that created the conditions for the financial collapse in the first place.

“Little in these reforms is really new,” Kaufman says of the current White House–backed Democratic Banking Committee plan. He calls the provisions for new “resolution authority” to dissolve failing banks “an illusion,” since the sheer size of the institutions makes painless, prepackaged liquidation unlikely. He worries about loopholes that exempt certain highly profitable derivatives from federal oversight. But most of all, he believes the current Senate plan, which relies on the wisdom of bank regulators, won’t prevent another crisis. “The sad reality is that regulators had substantial powers,” he announced during another Senate-floor speech in March, “but chose to abdicate their responsibilities.”

The White House has mostly avoided direct public engagement with its unlikely critic. On ABC’s This Week recently, White House economic aide Larry Summers dodged a question about Kaufman’s complaints. “Senator Kaufman is exactly right,” he said instead, sympathizing with the concern about large bank failures. In fact, on whether to dismantle the largest banks, it would be hard for the two men to disagree more.

Kaufman, who has taught politics at Duke and holds an MBA from Wharton, traces the roots of the collapse to what he calls the “great regulatory meltdown” of the past two decades, a move that was largely endorsed by Summers when he served as Treasury Secretary under President Clinton. But the Senator has been careful to avoid criticizing Democrats directly. He says he has not talked with the White House–or former boss Biden–about these issues and has only words of praise for Connecticut Senator Chris Dodd, a onetime champion of deregulation who wrote the Banking Committee bill. “We just have a very different view,” he says.

In his Senate office, Kaufman has stacked the latest books on the financial crisis on his desk, background reading for his regular trips to New York to meet with bankers and analysts. Financial regulation is a crusade he never expected to take on when he accepted his two-year posting. But his 32 years as a Senate aide taught him not to be discouraged by long odds.

“One of the reasons I love this place is, I have been hanging out here since 1973, and you never know what’s going to happen,” he says. In other words, Kaufman is confident that the last big fight of his short Senate career has only just begun.